Why culture matters and how to build it
What is this: This post serves as an introduction or reminder of the value of culture in business, the drivers of great culture, and key initiatives to help with building a high performing culture. It also scratches the surface on the topic of leadership by providing a set of questions and behaviors to help you think about your own actions, and it ends with a set of questions to help you evaluate a company’s culture for a place of work, investment, or partnership. I look forward to taking a deeper-dive into all of these topics in the months to come.
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Over the course of my career as an investor and operator, I have worked with dozens of leadership teams and companies in a variety of industries, worked for a bunch of bosses, hired and led some teams, and fell flat on my face more than a few times. Based on these experiences, I put together a handful of tools to help me think through how I find and work with potential investments and portfolio companies. One key area of focus for me has been effectively evaluating company climate / environment / culture (I’m going to take some liberties and use these terms interchangeably). I strongly believe that great cultures drive outperformance and also have the righteous effect of making people happy at work.
A lot of the literature, and most managers, say that leadership is about getting great business results. That’s partly right. For instance, you can get great results with cost cutting, or market timing, or a fortunate economic cycle — I don’t think any of these things make you a great leader. True leadership, in my mind, recognizes that people are the key to enduring success and then seeks to build a culture that both drives performance and creates an environment where people want to work, where people are happy. True leaders take on the enormously difficult and noble task of challenging, developing, and motivating their people because it’s good for the business and good for the individual. And given that the vast majority of us dread our workplace, finding and developing true leaders is a real differentiator for any company.
Not only does the research support the idea that culture drives performance and has a profound effect on employee happiness, but the views I share here have also been shaped by the great professional experiences I’ve been lucky enough to be a part of — where we achieved a good deal of business success and where I was inspired by the people and environment around me. Not coincidentally, these experiences all exhibited the same set of characteristics that ultimately define high performing cultures. I’m now at a point in my career where identifying, working with, and helping build these types of environments is paramount. I hope you find the below helpful.
Quick notes:
1. I’m not saying anything new or groundbreaking here — and that’s a good thing! The experts in organizational psychology have been remarkably consistent about strong cultures over the years. It’s normal to get overwhelmed by all of the literature out there, and part of my intention is to distill the key points in one post.
2. Start small. This is how I think about the sequence for all of this: can I articulate why a great culture is valuable? Can I explain the factors, characteristics, and drivers of a great culture? Can I talk to the initiatives and behaviors that will help me create a great culture? Are my behaviors aligned with the types of actions that help create great cultures?
3. Do not let the limitations of your sphere of influence detract you from studying and employing these lessons. All students of culture and leadership will tell you that they wished they started earlier. If you’re thinking, “well, I can’t run a mission / vision / values exercise so I’m not sure what I can do,” focus on the attitudes and behaviors you can bring to your life and workplace that will help create a better environment.
Structure:
1. The value of culture
2. The six factors of climate
3. High-impact initiatives
4. Stay on track
5. Due diligence questions
6. Reading list
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1. The Value of Culture
There are loads of people out there that think culture and its value are vaporous concepts — they’re not. Great culture drives outperformance, and a feature of great culture is a productive communication environment:
A. A company’s climate, or culture, is responsible for up to 1/3rd of its financial results. Dan Goleman’s Leadership That Gets Results ties this research together and lays it out in an easy-to-understand manner. There are many great books and articles on this topic, and they all come back to the main points of this work and the research Goleman references: leverage productive leadership styles and behaviors to influence key drivers of climate and significantly boost performance.
B. Companies that successfully foster a productive, open communication environment perform a lot better. Goleman’s work speaks to this, and so does the Corporate Executive Board’s study showing that companies that did this well contributed a 270 percent better return over a ten-year period than those that did not. Amy Edmonson’s work on psychological safety describes the science behind this dynamic, and provides a framework to build out an open communication, or psychologically safe, environment. More on psychological safety later.
2. The Six Factors of Climate
In Goleman’s essay, he ties David McLelland’s research on leadership styles and organizational climate to his own work on emotional intelligence. I’ll save the in-depth leadership discussion for a different day, but it’s no surprise that folks like to work for people that build trusting relationships, over-communicate strategy and accountability (consequences & rewards), and coach and challenge.
The six key factors of organizational climate and my own thoughts on each:
A. Flexibility: How free do employees feel to improvise and get stuff done? In my view, flexibility is maximized when:
Employees have a proper definition of success (how am I being measured?).
Employees have the tools to do their jobs.
Failure is accepted, encouraged, and even celebrated.
B. Responsibility: What is the sense of responsibility to the organization? Responsibility is maximized when:
There is a psychologically safe environment that allows employees to be themselves, speak up, learn, and make mistakes.
Employees believe that their company and manager care about making them better workers and better people (this includes a commitment to coaching, processes to facilitate flexibility, and the right tools to do the job)
C. Standards: What level of excellence do we aspire to? Tom Peter’s The Excellence Dividend is a must read and provides frameworks, tips, and behaviors to help drive excellence in your organization. A few ways to drive excellence:
Define your standards of excellence and make sure they’re well understood.
Hold people accountable, actively coach, and recognize success stories.
D. Feedback and Rewards: What is the aptness and quality of performance feedback? In order to maximize a company’s feedback environment:
Define feedback protocols (how do we communicate to each other?).
Build a training program to help employees learn how to give and receive feedback.
Give real-time, actionable feedback.
Build a frequent cadence of regular, longer feedback sessions per an employee’s needs, and keep this time sacred.
E. Clarity: Are the organization’s mission and values clear? A mission and values checklist:
Complete a mission and values exercise.
Train each employee on how to speak to the company’s mission and values.
Tie mission and values to expected behaviors.
Manage expected behaviors.
F. Commitment: Do we share a commitment to a common purpose? A commitment checklist:
Identify a common purpose!
Define the group end goal.
Define individual responsibilities.
3. High-impact initiatives
There are two heavy, long-term lifts that I believe are necessary to build an enduring, high performing, great place to work: a deep understanding and practice of the behaviors that create psychological safety; and the build-out of a strategic HR department.
A. Create a psychologically safe environment: You’ll recognize this term from its ever-increasing usage per Google’s research on high-performing teams and the company’s conclusion that psychological safety is the foundational element to all high-performing groups. Amy Edmonson has been researching and writing on it for decades. Her recent book, The Fearless Organization — which ties together this research and provides a framework for creating such an environment — is a must.
Some notes on psychological safety:
i. How psychologically safe a person feels strongly influences their propensity to engage in learning behaviors, such as sharing information, asking for help, and experimenting. The fearless, or psychologically safe, organization is one in which interpersonal fear is minimized so that the team and organization performance can be maximized. In these environments, people speak up, ask questions, debate vigorously, and commit to continuous learning and improving. It’s not hard to see how these are more productive workplaces; however,
ii. People are naturally reluctant to be wrong, stand out, or offend the boss. In fact, Gallup’s research shows that only 3 in 10 employees feel comfortable with sharing ideas at work. This is nuts. They calculated that by “moving the ratio to six in ten employees, organizations could realize a 27% reduction in turnover, a 40% reduction in safety incidents, and a 12% increase in productivity.” Why is this then below the radar of so many management teams and board groups?
iii. It gets worse: environments that are low in psychological safety can lead to frustration, anxiety, depression, and even physical harm among employees. You are literally killing your people by not actively engaging in behaviors that build psychological safety. Yes, carrying this burden is part of the challenge of being a leader!
What to do about it:
i. Edmonson provides resources to assess your organization’s current level of psychological safety and a number of practical frameworks to help build and improve on the dynamic. Read them, internalize them, implement them. A brief overview of the primary framework to kickstart your internal dialogue (i.e. are you doing these things?):
Setting the stage: frame your work (expectations) and emphasize purpose (what’s at stake) to create shared expectations and meaning.
Inviting participation: demonstrate humility, practice inquiry, and set up structures for feedback to instill confidence that every voice is welcome.
Responding productively: express appreciation, destigmatize failure (look forward and offer help), and sanction clear violations to create an orientation toward continuous learning.
2. Build a strategic HR department: In order to build a great culture, you need both a supportive C-suite and an HR department that serves as a cross-functional lynchpin that helps deliver on the following:
A. Mission, vision, values and expected behaviors:
i. The buildout of mission, vision, values and expected behaviors needs to be company-wide and can / should evolve over time. When done right, this gives a company a framework to manage behaviors and norms, and thus directly build culture.
ii. A quick reminder:
Mission: what a company does now — why do you exist?
Vision: what a company wants to become — what do you want to achieve?
Values: principles and ideals that guide daily life — how do we behave?
B. Feedback / performance reviews:
i. The feedback protocols and expectations should be well-defined and understood across the organization (both receiving and giving), for all applicable situations:
Daily, real-time feedback.
Weekly feedback sessions.
Quarterly reviews.
Annual reviews.
ii. Actively encourage feedback, and show gratitude and course correct, when necessary.
iii. In addition to Edmonson’s work, Crucial Conversations and The Coaching Habit are two of my favorite resources for this topic.
C. Training / learning & development:
i. Build a learning & development function! If you’re starting from scratch, even a simple intranet with company information and resources is productive.
ii. Train employees on (a) mission, vision, values and expected behaviors, (b) feedback protocols, © overall business model, (d) key strategic initiatives, (e) various department functions and roles, and of course (f) key tools and requirements for their own positions.
iii. Regularly communicate performance progress or changes in key initiatives — informed employees are better employees. Put this on a whiteboard that everyone can see!
D. Recruiting
i. I cannot emphasize the importance of great recruiting enough — A-players will ultimately determine how far your business goes.
ii. First, define A-players in your organization.
iii. Build out job descriptions that clearly outline the definition of success and the company’s values and expected behaviors. Eliminate fluff.
iv. Hold every manager+ in the organization accountable for recruiting A players — this should be part of their reviews and compensation scheme.
v. Always ask people in your network — do you know anyone I should hire? Stock your bullpen!
vi. A quick reminder that some estimate the cost of a bad hire at 2x salary in hard costs and productivity, while Geoff Smart puts it as high as 15x! Any version of this math should compel you to focus your organization on getting the right people on board.
vii. Who and The Best Team Wins provide great frameworks for executing on all of these initiatives.
E. Meetings
i. Fix your meetings! This might seem out of place in a key initiative section in an essay on culture, but I promise, it’s not. Meetings are a big tool in promoting and reiterating your values and expected behaviors. At their worst, they stifle creativity, waste massive amounts of time and money, and spread the parts of your culture that you haven’t gotten quite right.
ii. Be thoughtful about meeting length, agendas, notes, take-aways, attendees, and follow-ups. How do you manage these today?
iii. Steven Rogelberg’s The Surprising Science of Meetings is one of my favorite resources on this topic.
4. Stay on track
Life can get busy or stressful or both and sometimes we start to drift from the behaviors that help us be our best selves and positively influence the factors of great cultures and the people around us. Robert Kaplan’s seven suggested questions are a great framework to rely on to make sure we’re on track. I’ve added two more. Print these out, put them on your wall.
A. Vision & Priorities: How often do I communicate our vision and the priorities required to meet the vision?
B. Managing Time: Does the way I spend my time match my key priorities? Use Covey’s description of the Urgent / Important framework and walk yourself through this exercise. What can you and your team stop doing altogether? What can you delegate?
C. Feedback: Do I give people timely, direct and high-quality feedback?
D. Succession Planning: Have I identified stars? Can I define an A-player? Am I recruiting and retaining A-players?
E. Evaluation & Alignment: Do I understand the business’s challenges and am I adapting? Companies need to regularly revisit their strategic plan and associated initiatives to understand if their assumptions are still valid — constantly question what’s working and not working, and why. This should then realign expectations (company and employee-specific) and relevant incentives. How many times have you seen an employee receive a bad performance review because they underperformed against a plan that was ultimately chock-full of incorrect assumptions? Don’t do this — it has a very real negative effect on the feedback and rewards factor.
F. Leading Under Pressure: How do I behave under pressure? As a manager and leader, you’re always on a stage, remember that. This will have a big impact on psychological safety and a sense of responsibility.
G. Staying True: Does my leadership style accurately reflect who I am? Get a great grasp of your strengths and weaknesses and solve for them accordingly. Take a personality test and really engage with 360-degree feedback. And if you can do it, get a coach.
H. Talking to Customers: Have I talked to a customer today? Customer centricity is a hallmark of high-performing cultures. Set up the right systems and processes to receive and incorporate feedback into your service or product and get your entire employee base on board.
I. 100% Ownership: I had a really great coach that often presented this challenge to me — to 100% own the quality of my relationships. The idea is that of course it takes more than one person to be in a relationship, but a 100% ownership orientation will guide you to doing what’s best for that relationship, regardless if you think you’re in the right and / or other folks are in the wrong. This has heavily influenced how I operate and has also made me a much better husband in the meantime!
5. Due Diligence Questions:
Ask these questions to better understand a company’s view on culture and the maturity of its infrastructure and processes to drive and create great cultures. I find these incredibly helpful — I hope you do too:
The six factors:
- Flexibility — how free do employees feel to get things done?
- Responsibility — how do you describe the sense of responsibility that employees have to the company?
- Standards — how do you describe your standard of excellence in your company?
- Rewards — how do you describe the aptness of incentives and feedback in your company?
- Clarity — are the company’s mission and values clear?
- Commitment — how do you describe the level of commitment among the employees at your company?
Other culture stuff:
- Please describe the company’s mission and values and how they were formed.
- What are the expected behaviors in your organization and how are they managed?
- How do you hold people accountable to living your values and expected behaviors?
- How do your mission, values, and expected behaviors drive performance?
- Please describe your value proposition and key differentiators.
- Can your employees define the company’s value proposition and key differentiators?
- Can your employees describe key strategic initiatives and associated milestones?
- How does your company define a productive leadership style and how do you think it impacts your results?
- How do you train and hold your employees accountable to be productive leaders?
- What are some examples of behaviors that lead to success in your organization?
- What are some examples of behaviors that don’t fit well with your company?
- How do you describe the ideal attitude in your company?
Communication and feedback:
- Do employees feel comfortable with sharing their own opinions?
- What is your company’s attitude toward failure?
- What are the systems or processes in place to promote feedback from employees?
- What are your expectations for how people give and receive feedback in your company?
- How often is feedback given / received in your company?
- How do you train people to give and receive feedback in your organization?
HR:
- Please describe the structure of your HR organization.
- Please describe HR’s primary goals and associated initiatives.
- How do you define A-players in your organization?
- How do you recruit, hire, and retain A-players?
- How are managers held accountable for hiring A-players?
- How long does it typically take to fill an open position in your company?
- Please describe your training, or learning & development infrastructure and programs.
Meetings:
- Please describe a typical meeting at your company.
- Are there formal rules in place to drive productive meetings at your company?
- Please talk about your views regarding meeting length, agendas, notes, participants / roles, take-aways, and follow-ups.
- How often do company-wide meetings take place?
- How often do teams meet?
- How often do employees meet 1x1 with their manager?
6. Reading List:
Must Read:
- Leadership That Gets Results, Dan Goleman
- The Excellence Dividend, Tom Peters
- The Fearless Organization, Amy Edmondson
Read these too:
- Strategic HR: Powerful, Patty McCord
- Strategic HR: The Best Team Wins, Adam Robinson
- Strategic HR: Who, Geoff Smart and Randy Street
- Execute: The Execution Premium, Robert S. Kaplan and David P. Norton
- Execute: Execution, Larry Bossidy and Ram Charan
- Execute: Stacking the Deck, David Pottruck
- Feedback: The Coaching Habit, Michael Bungay Stanier
- Feedback: Crucial Conversations, Kerry Patterson, Joseph Grenny, Ron McMillan, and Al Switzler
- Meetings: The Surprising Science of Meetings, Steven Rogelberg